GFOAzMay 17, 2012 Quarterly TrainingTom Duensing

Incorporated in 2003 (88th Municipality) 2010 Population = 43,482 (4,081% growth) Average Household Income = $75,000 61% Residents – Degree 214 FTS General Fund Budget = $29.8 million Explosive Growth = Explosive Construction

Capital Asset Accounting Long-Term Debt Accounting Pension Accounting (OPEB)

Grant Accounting

Financial Policies

Describes the Events Reported in the Operating Statement Governmental Funds – Transactions Affect

the Current Financial Resources – What are the transactions that affect the resources available for spending?

GW Statements & Propriety Funds – Transactions Affect the Economic Resources

Governmental Funds vs. GW/Proprietary Funds – Affect on Fund Balance vs. Net Assets 

Flow of Resources

Governmental Funds

(Fund Balance)

GW/Proprietary Funds (Net

Assets)Capital Outlay Decrease No EffectDebt Issuance Increase No EffectDebt Service Payments

   

Principal Decrease No Effect Interest Decrease Decrease

Governmental Funds vs. Proprietary Funds – Affect on Fund Balance vs. Net Assets 

Flow of Resources

Governmental Funds

(Fund Balance)

GW/Proprietary Funds (Net

Assets)Full Accrual n/aModified Accrual n/a

Acquiring Capital Assets Capital Projects Funds

Acquisition or Construction of Major of Major Capital Facilities

Non-Capital Projects Governmental Funds Proprietary Funds

Assets Benefitting More Than a Single Period Classes - Land, Buildings, Improvements,

Equipment, Infrastructure, Construction in Progress Typically Ownership is Evidenced by Title Sometimes Ownership is Unclear Who manages or maintains the asset may

determine ownership

Governmental (Current Financial Resources)

Dr. Expenditure – Capital Outlay $XXXCr. Cash $XXX

GW/Proprietary (Economic Resource)Dr. Asset $XXX

Cr. Cash $XXXDr. Depreciation Expense $XXX

Cr. Accumulated Depreciation $XXX

Reported at Historical Cost Estimated Historical Cost May be Used

Even if Moved from One Fund to Another Donations - Fair Value on the Date Donated

Historical Cost Should Include Ancillary Charges to Place in the Intended

Location (e.g. freight) Ancillary Charges to Place in the Intended

Condition (e.g. installation, site prep) Subsequent Additions or Improvements

(extend life or enhance functionality)

Based on a Dollar Value GFOA Recommends Thresholds be >

$5,000 (Federal = $5,000) Thresholds are Not Related to Control

Over Assets Governments Should Strive for an

appropriate balance between ensuring all material assets are capitalized & the cost of recordkeeping.

How are most governmental capital assets depreciated? Why?

Composite Depreciation Methods Similar or dissimilar assets in the same

asset class (infrastructure, buildings, etc.) Weighted average or unweighted average

Unweighted-averageUnweighted-Average Depreciation

Component Useful Life Cost Bridges 50 2,000,000 Roadways 25 10,000,000 Curbs/gutters 15 10,000 Street lights 15 750,000 Traffic signals 18 750,000 Street signs 10 250,000

133 13,760,000

Useful Life 133# of Asset Classes 6Avg. Years 22.17

1/Avg Years 4.5%

Weighted AverageWeighted Average Depreciation

Component Useful Life Cost Cost x LifeBridges 50 2,000,000 100,000,000 Roadways 25 10,000,000 250,000,000 Curbs/gutters 15 10,000 150,000 Street lights 15 750,000 11,250,000 Traffic signals 18 750,000 13,500,000 Street signs 10 250,000 2,500,000

133 13,760,000 377,400,000

Cost x Life 377,400,000 Cost 13,760,000 Avg. Years 27.43

1/Avg Years 3.6%

Fully Depreciated Assets Normally, not appropriate to report Reduce depreciation expense when useful

life is longer than expected Composite Depreciation

Can report fully depreciated assets Should not be material

Which items should be capitalized? Expenditures over $5,000 & greater than 1 Yr. Donations

What asset classifications should be used? Which items should be

depreciated/amortized and how? Individual or classes of assets Depreciation methods

Tagging, Disposal, Physical Inventories

Examples Bonds/Notes Payable Other Postemployment Benefits (typically

Retiree Healthcare) Compensated Absences Capital Leases Claims & Judgments

Governmental Funds Inflow of Resources

Proprietary Funds No Affect

Liability is Offset by an Asset

Debt Issuance – Governmental Fund (Increases Fund Balance)Dr. Cash $XXX

Cr. Other Financing Source $XXX Debt Issuance – Proprietary Fund (No

Impact on Net Assets)Dr. Cash $XXX

Cr. Bonds Payable $XXX

Debt Payments - Governmental Fund (Decreases Fund Balance)Dr. Principal Exp $XXXDr. Interest Exp $XXX

Cr. Cash $XXX

Debt Payments – Proprietary Fund (No Impact on Net Assets for Principal Portion)Dr. Bonds Payable $XXXDr. Interest Exp $XXX

Cr. Cash $XXX

Required Footnote Disclosure Separate by class Separate by Governmental Activities vs.

Business-Type Activities Reports Changes in Long-Term

Liabilities

Changes in Long Term Liabilities

1. State Administered Pension System ASRS & PSPRS

State Holds the Asset Actuarially Determined Rates Contributions are Expensed as Paid

2. City Administered Pension System COPERS & TSRS

Phoenix & Tucson Retirement Trust Funds Employer Reports Pension Trust Fund Only if it

Holds Resources in a Trust for that Purpose

Currently, do most Arizona governments have a pension liability?

That may change…… Postemployment Benefit Accounting

and Financial Reporting Currently being deliberated Unfunded liability

Is this a good thing?

Similar to Pensions What is it? Recorded as a Long Term Liability Assets

Administered By Cities Fiduciary Fund – If assets are set aside in a trust

Is this a good thing?

Federal Requirements OMB Circulars

Financial Reporting Federal Agencies Governmental Financial Statements

GASB 33 – Non-Exchange Transaction

Revenue Recognition Expenditure Driven Grants - Revenues are

Recognized When the Expenditure Occurs TYPICALLY, When Amounts Are Expended

When is revenue deferred? Grant award is received in advance of expenditure

When is revenue accrued? Amount is measurable (expenditure has been

incurred) Amount is available – Typically can be considered

available beyond 60 days but no more than one year

GFOA Encourages Establishment of Financial Policies*

Why do we need financial policies? Helps frame the resource allocation decision What does that mean?

Guides the creation, maintenance and use of resources for financial stabilization purposes

e.g. guides decision making

* GFOA Best Practice “Adoption of Financial Policies

NACSLB – Recommended Budget Practices Document Provides a Framework for State &

Local Budgeting What is one of the most important things

governments do? Allocate Resources for Programs and Services

The Budget is the Plan The guidance recommends governments, at

a minimum, “adopt financial policies”

Areas of Financial Policy DevelopmentA. Financial Planning PoliciesB. Revenue PoliciesC. Expenditure Policies

Policies Should be Continually Reviewed

1. Balanced Budget Should define “balanced budget” &

encourage adherence

2. Long-Range Planning Process Impact of proposed operating & capital

budgets Forecast

3. Asset Inventory Inventory & assess all major capital assets.

1. Revenue Diversification Handle fluctuations in individual revenues

2. Fees & Charges Addresses how fees & charges are they set To what extent do they cover costs

3. Use of One-Time Revenues Discourage use for ongoing expenditures

4. Use of Unpredictable Revenues (Constr. Sales Tax) How will these revenues be used?

1. Debt Capacity, Issuance & Management Appropriate Use of Debt (Capital Only) Maximum Amount of Debt/Debt Service

2. Reserve/Stabilization Accounts Protects against revenue/expenditure

fluctuations

3. Operating/Capital Expenditure Accountability

Periodic (e.g. quarterly) B to A comparisons to make decisions early on

Mandatory for Governments Applying for GFOA Distinguished Budget Presentation Award

One Size Does not Fit All Property Tax Policies Financial Reporting Policies (GFOA Awards)

The City shall maintain a General Fund Unreserved Fund Balance of at least 10% of current year revenues.

50% of one-time revenues will be used to fund capital expenditures.

Use life of capital projects will exceed the life of the financing bonds.

Current year revenue will be sufficient to support current year operating expenditures.

Capital assets will be maintained to minimize future operating costs.

tom.duensing@maricopa-az.gov